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China discussions and inflation figures may determine the direction for stocks in the coming week.

May 9, 2025

The Wall Street mood next week might hinge on discussions taking place in Switzerland over the weekend. Chinese and US officials, including Treasury Secretary Scott Bescent, are set to talk about trade relations on Saturday. Investors are keenly awaiting signs of significant progress, particularly after President Donald Trump mentioned on Friday that he would consider reducing tariffs on China from 145% to 80%. With the S&P 500 already up over 13% since its low on April 8th, a substantial positive development on the trade front seems necessary for the market to make another significant leap.

Many believe that the rally is fueled by hopes of a breakthrough with China, and there’s a chance that, when the actual news is released, the market’s reaction may be tepid, potentially marking a tactical peak regardless of the content of the news. The S&P 500 has rebounded from the lows witnessed in early April as concerns over tariffs lessened. Trade talks between the US and the UK are ongoing, and last week’s trade data provided a positive boost, although that momentum did not carry into Friday, where the main averages remained mostly unchanged.

Inflation is another critical issue on the table, with the consumer price index (CPI) report for April due on Tuesday. Wall Street would likely welcome another unexpected decline in inflation, similar to what was seen in March. This CPI report, along with retail sales data and producer price indexes set to be released on Thursday, should help clarify how ongoing trade tensions are affecting both inflation rates and consumer health.

Adityah Bhave, a US economist at Bank of America, noted in a client memo that tariffs could impact data significantly, particularly through increasing car prices. They also expect a 0.5% month-over-month drop for both retail distributors and the control group. While the first quarter earnings season is wrapping up, some major reports are still forthcoming, including those from Walmart and Alibaba. With about 90% of S&P 500 earnings having been reported, companies have generally exceeded estimates at an above-average rate, according to John Batters, a senior revenue analyst at Factset. However, these earnings have come amid a backdrop of analysts lowering their estimates.

David Costin, Goldman Sachs’ chief equity strategist, remarked that we are in a negative revenue revision environment typical of a recession, but this doesn’t necessarily mean that a recession is already factored into the market. Goldman’s baseline view is that the US economy might narrowly avoid a recession, but should contractions occur, they could lead to a notable decline in the stock market.

Looking ahead, several key economic reports are scheduled for the week: